State attorneys general urge FHFA, HUD to expand mortgage payment help

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A bipartisan coalition of state attorneys general is recommending that homeowners who skip mortgage payments because of the coronavirus pandemic be allowed to delay those payments until the end of the loan’s term.

The attorneys general sent letters Thursday to Federal Housing Finance Agency Director Mark Calabria and Department of Housing and Urban Development Secretary Ben Carson urging them to revise current forbearance programs to help borrowers remain in their homes.

Currently, once the forbearance period ends, borrowers are being asked either to repay the missed payments in a lump sum or enter into a more permanent loss mitigation agreement. Although Fannie Mae and Freddie Mac have announced a deferral program allowing borrowers to wait until the end of a term to make skipped payments, that program may not get off the ground until next year.

Borrowers currently are unlikely to afford the lump sum, and servicers may already be too overwhelmed to handle loss mitigation requests.

The AGs are asking FHFA and HUD to revise their forbearance programs so that the entire amount of skipped payments are placed at the end of the loan's term.
The AGs are asking FHFA and HUD to revise their forbearance programs so that the entire amount of skipped payments are placed at the end of the loan's term.

“While forbearance plans are a critical first response, we have significant concerns about the mortgage servicing industry’s ability to implement the forbearance plans as they are currently contemplated and about what will happen to homeowners after the forbearance period ends,” the letters said.

The letters — signed by 25 Democrats and nine Republicans — give estimates that 25%-35% of homeowners may need some form of assistance. The attorneys general offered three suggestions to ensure that homeowners “are given a fair opportunity" to retain their homes and not be pushed into foreclosure.

First, they want the FHFA and HUD to revise their forbearance programs so that the entire amount of skipped payments are placed at the end of the loan's term.

Fannie Mae and Freddie Mac recently announced a payment deferral program that places payments skipped through forbearance on the end of the loan. But servicers are not required to implement it until January 2021. Moreover, the program has further restrictions. Borrowers are only eligible for deferment if they are no more than 60 days delinquent, have had their loan for at least a year and have not received a modification.

“These restrictive eligibility requirements, along with the delayed effective date mean that most borrowers who receive a forbearance are unlikely to receive a Payment Deferral,” the AGs said in the four-page letter.

The AGs also argue that the mortgage servicing industry is ill equipped to deal with millions of borrowers who need relief at the same time. They point out that servicers largely failed to provide borrowers with relief during the financial crisis in 2007 and 2008, when the number of homeowners needing loss mitigation was stretched out over many years.

“Based on past experiences with both the last foreclosure crisis and recent natural disasters, we fear that both the mortgage servicing industry and homeowners will become overwhelmed if changes are not made,” the letter said.

Second, the attorneys general suggest that the FHFA waive a requirement that a borrower be current or less than 31 days delinquent at the time of the COVID-19 national emergency declaration to be eligible for disaster-related modifications.

They want HUD to revise the eligibility criteria of modification options to ensure that its programs have the same reach as the forbearance program mandated by Congress in the coronavirus relief bill.

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Servicing FHFA HUD Mortgages Loss mitigation Coronavirus Mark Calabria
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